What 'Average Is Over' Means for CUs

Those who hope their twenty-something offspring will eventually move out on their own probably shouldn’t read Average Is Over, a trendy new book by economist Tyler Cowen.

The general idea is this: the Great Recession exposed the painful truth that most middle-wage earners don’t produce enough work to justify their salaries and benefits. And as the technological revolution continues to change the way we work, most won’t be able to improve their skill set enough to qualify for high-earning jobs. High-wage jobs will require workers who can quickly and easily use computers to improve their production and profitability. Think about how computerized trading has changed Wall Street. Expect more of that.

Many mid-wage jobs will be replaced by computers, leaving Americans unwilling to improve their skills to either live off government benefits or work low-wage jobs. In our culture, we’ve been conditioned to expect mid-range salaries, especially after earning a bachelor’s degree. Because of these cultural expectations, most are psychologically unwilling to accept a low-wage job instead.

Ten years ago, 5 million Americans collected a federal disability benefit. Today, the number is up to 8.2 million. However, the American workplace has never been safer. It’s no accident many of those who now collect disability applied for the benefit following a job loss, Cowen observed.

Today’s unemployed and underemployed youth are a perfect example of this phenomenon at work.

“In a wealthy society, sometimes it’s just enough to get by and have a good time. It may not sound adventurous or even very American, but we’re going to be seeing more of that in the years to come,” Cowen wrote.

Secretary of Education Arne Duncan famously said three-quarters of Americans between the ages of 17 and 34 are unfit to serve in the military for reasons that include drug use, medications, weight problems, bad credit scores and criminal records.

Remember when the military was for young adults who couldn’t cut it in the working world? It’s not just that young people have changed; the military has changed, too. Brute force positions are rapidly being replaced by those that require technological expertise. The increasing use of drone warfare and cyber warfare are two good examples.

Cowen’s theories have many implications for credit unions.

The most pressing one is that credit unions might want to rethink the efforts they’re putting into attracting Gen Y. That’s not to say credit unions shouldn’t strive to attract young members—without them, the industry will die.

However, Gen Y and the generations that follow won’t have the wealth of baby boomers or even Gen X. For a business model that relies upon lending, that’s a sobering thought.

The credit union as a workplace could also radically change.

We can expect automated transactions to continue to replace manual ones. That means more members will use mobile banking and fewer will visit branches. And, kiosks will increasingly replace in-person tellers, thanks to rising costs of benefits, liability and other operational expenses.

But even with improvements in artificial intelligence, there are some things that the old- fashioned human brain computer can still do better than IBM or Apple.

Cowen uses the example of chess, and how computer programs already regularly beat chess masters. Computerized programs do especially well in chess because it is a regularized environment where the right answer can be reached by pure calculation.

However, computers will probably never replace humans in the game of poker, because of the psychological aspect. Computers don’t know how to psych out opponents, bluff or read tells.

For credit unions, that means loan processor positions may dwindle, but loan officers that can make accurate credit risk judgment calls beyond FICO scores and debt ratios still have a place in the future.

Credit unions might also want to rethink the resources they put into corporate headquarters and commercial business lending. Cowen agrees with economists who say rush hour traffic will eventually be a thing of the past, as most workers will telecommute in the future, only occasionally showing up at an office for collaboration.

Office buildings could convert into slum lofts for unemployed and underemployed young adults, who can’t afford cars and will live near city centers, where they can get everything they need on foot.

Interestingly, Cowen thinks human skills like marketing and management will translate into high-paying jobs along with predictable positions in technology, law and finance.

If you’re like me, you’ve had a hunch jobs lost in the Great Recession aren’t coming back, and the widening income disparity is here to stay. Cowen does a great job of quantifying that hunch in his book, and I know I’ll be keeping an eye on his Marginal Revolution blog.